Coronaviurs pandemic signals troubles for RMG sector

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Bangladesh's RMG sector is now in threat from both buyers' and suppliers' end as a result of global coronaviurs situation. Initially, it was assumed that Bangladesh will be benefited from coronaviurs as most of the global brands are planning to shift their export orders from China to other RMG manufacturing countries like Bangladesh, Vietnam, India, Indonesia and Cambodia. Some globally reputed buyers have already started shifting their export orders from China to Bangladesh since January, 2020. But now it is time to think if the coronaviurs situation will create opportunities for RMG sector in Bangladesh or it is a large threat for the country where RMG  contributes around 84 % to total export earnings.

Our garment industry is heavily reliant on China for recycleables. We source around 60 per cent woven fabrics, 15-20 per cent knit fabrics and 80-85 per cent dying chemicals and accessories from China for RMG export. After China's shutdown since January, 2020, sourcing of our RMG raw-materials has been afflicted badly and it might take another three to half a year to stabilise the supply chain from China. The alternative raw material supplying countries like India are also damaged by coronaviurs.

Our garment industry will hardly be able to mange up to April, 2020 with current stocks and the ones on-board ships. But after April, 2020, they could face serious crisis because of lack of option of alternative sources of raw materials at cheap rates. So, it is not unlikely that our exporters will face problems in maintaining shipment schedule which can lead to order cancellation, discounting, or air shipment at exorbitant costs.

More importantly, quite a few buyer countries are actually gradually being damaged by coronaviurs, especially the EU countries. According to Export Promotion Bureau (EPB) data, Bangladesh's export earnings from ten major countries including USA, Germany, France, UK, Spain, Italy, Netherlands, Poland, Canada and Japan in the FY 2018-19 was $28.89 billion (including $25.53 billion from RMG alone) out of total export earnings of $40.53 billion (including total RMG export of $34.13 billion).

Bangladesh's top buyer countries are actually corona-struck, i.e., 71.23 % of global export market is in problem. Among our major RMG buyer countries, Italy is now shutdown plus some other EU countries are also showing signs of anxiety. In the FY 2018-19, Bangladesh earned around 55 % of total export from EU countries including $1.64 billion, i.e. 4.05 per c ent (mostly RMG goods) from Italy. So, currently 55 per cent of our export markets in the EU is nearly in a shutdown position and almost all of the globally reputed buyers from EU will be damaged and incur huge losses. The buyers may require discount, cancel or reduce their export orders to overcome their current difficulties. So, our garment exporters will not be relaxed to execute export orders at hand and also to obtain future orders.
 
However, the majority of the RMG factories already procured raw-materials or opened back-to-back LC (BBLC) for importing raw-materials on deferred payment basis for executing export orders at hand against Sales Contract (mostly). Now, if the buyers require discount, cancel the existing sales contract or reduce export orders, the exporters will face problem in settlement of deferred payment against their outstanding BBLC, which will have chain effect on all the backward linkage industries and banks.

If we fail to take correct initiatives now, most of our medium and small garments industries might not exactly manage to manage the upcoming challenges. So, it is the right time to take proper initiatives.

• The federal government should take initiatives for formation of a higher level strategic committee comprising all of the stakeholders including BGMEA and BKMEA, policy makers, bankers (like the central bank) to recognize problems and suggest probable remedies.

• BGMEA and BKMEA should open monitoring cells to see and support their members and keep maintaining proper MIS for global impact of coronaviurs.

• The federal government may develop crisis management fund through Bangladesh Bank (long term refinance fund @ zero/ lower interest) to aid RMG sector for settlement of deferred payment against already imported raw-materials or outstanding BBLC and for overcoming the existing situation, that will indirectly support our backward linkage industries and banking sector.  

• The government may consider increasing cash incentives or developing separate cash incentive packages through Bangladesh Bank to aid affected RMG factories.

• Special exchange rate incentives (like foreign remittance) to the RMG Industries for the moment may be allowed to support their operating expenses.

• Bangladesh Bank might take initiatives to relax some terms and conditions within their guidelines to overcome the existing situation.
Source: https://thefinancialexpress.com.bd

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